Specter of public unrest spurs Zambia to drop IMF-backed reform

ByTony Hawkins, Special to The Christian Science MonitorMay 7, 1987

Harare, Zimbabwe
— Zambia's recent decision to abandon its economic reform program, designed and sponsored by the International Monetary Fund, was apparently prompted more by political than economic considerations. Several African countries have balked at IMF measures designed to arrest their failing economies, but Zambia is the first to announce a complete policy reversal. And its abandonment of the IMF program will challenge the views of African leaders and their international donors on how to arrest Africa's economic decline.

Apparently, the IMF's insistence that Zambia regain control of its budget and money supply by reducing its budget deficit from more than 30 percent of gross domestic product to around 10 percent was the last straw. The potential political repercussions of such a step led President Kenneth Kaunda to drop the program.

President Kaunda is no stranger to public unrest that can result from radical changes in economic policies. Late last year, Zambia itself attempted some of these measures, raising the price of maize meal (the staple food) by 120 percent. But it rescinded the move after 15 people died during riots sparked by the price hike.

Kaunda's own plan for rebuilding Zambia's economy includes limiting the nation's debt-service payments to no more than 5 percent of total exports, reimposing price controls, and banning both expatriate remittances and allowances for foreign travel.

He also intends to establish a new system of import controls, reduce interest rates, and set the Zambian currency, the kwacha, at a level of 8 to 1 to the United States dollar, compared with the free-market rate of 21 to the dollar.

Few economists believe that a country with a $5.8 billion foreign debt and a debt-service ratio of 70 percent of exports can revitalize its economy without substantial inflows of foreign capital. Last December, the World Bank estimated that the country needs some $2.7 billion in new capital inflows over the next three years. More than half of this would be required just to recycle existing debts.

President Kaunda says money saved by limiting debt-service payments to 5 percent of export earnings can be used to rehabilitate the economy. But economic analysts say that copper, Zambia's biggest hard-currency earner, is not likely to produce enough revenue.

Zambia's living standards have fallen some 40 percent since 1977. Rising unemployment and unrest among the public, evidenced in recent strikes, leaves Kaunda anxious to try a strategy more palatable to the people.

Kaunda's plan may prove popular in the short run because consumers will be cushioned to some degree by high subsidies and price controls. But ultimately, say economic analysts, someone will have to pay for the subsidies. Most likely these will be financed from Zambia's already inadequate savings, at the expense of investment in new capacity and jobs.

It is difficult to tell whether Zambians see the new approach as a sustainable strategy or just one more round in the protracted bargaining with their creditors. If past experience is any guide, countries that try to make it without the international business community usually must retrace their steps. It may be that Kaunda's sharp attack on the IMF, accusing it of trying to undermine his new program, is trying to get the fund to soften its stance. The IMF denied the charges.

Lusaka clearly hopes that Western donors will continue to provide support although the reform program has been dropped. Britain has already signaled that its aid is dependent on an IMF agreement and the Reagan administration, committed as it is to structural reform in sub-Saharan Africa, is likely to send a similar message.